SEC Filing | Seer, Inc.

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seer-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number 001-39747

SEER, INC.

(Exact name of Registrant as specified in its charter)


Delaware						82-1153150
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

3800 Bridge Parkway, Suite 102

Redwood City, California 94065

650-453-0000

(Address, including zip code and telephone number, including area code, of Registrant’s principal executive offices)

Securities registered pursuant to section 12(b) of the Act:

Copies to:

Title of each class

Trading Symbol(s)

Name of Exchange on which registered

Common Stock, par value $0.00001

SEER

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Smaller reporting company

☒

Non-accelerated filer

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 5, 2023, the registrant had 59,696,350 shares of Class A common stock, $0.00001 par value per share, and 4,044,969 shares of Class B common stock, $0.00001 par value per share, outstanding.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities	70
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosure	71
Item 5.	Other Information	71
Item 6.	Exhibits	72
Signatures

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, commercial activities and costs, research and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

•estimates of our addressable market, market growth, key performance indicators, capital requirements and our needs for additional financing;

•our expectations regarding our financial performance, including among others, revenue, cost of revenue, gross profit, operating expenses, loss from operations and net losses;

•our ability to successfully implement our commercialization strategy and attract customers, including our plans for international expansion;

•the implementation of our business model, strategic plans and expected pricing for the Proteograph™ Product Suite;

•our expectations regarding the rate and degree of market acceptance of the Proteograph Product Suite;

•the impact of the Proteograph Product Suite on the field of proteomics and the size and growth of the addressable proteomics market;

•competitive companies and technologies and our industry;

•our ability to manage and grow our business;

•our ability to develop and commercialize new products;

•our ability to establish and maintain intellectual property protection for our products or avoid or defend claims of infringement;

•the performance of third-party manufacturers and suppliers;

•the potential effects of government regulation;

•our ability to hire and retain key personnel and to manage our future growth effectively;

•the volatility of the trading price of our Class A common stock;

•the benefits of the PrognomiQ, Inc. transaction;

•the impact of local, regional, and national and international economic conditions and events;

•the impact of macroeconomic factors, such as pandemics, inflation, supply chain interruptions and foreign hostilities, on our business; and

•our expectations about market trends.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements contained herein to reflect events or circumstances after the date of this Quarterly Report, whether as a result of any new information, future events or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

SEER, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)


	March 31,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	48,386	$	53,208
Short-term investments	303,708		368,031
Accounts receivable, net	4,735		4,315
Related party receivables	1,383		1,804
Other receivables	1,065		899
Inventory	3,718		4,627
Prepaid expenses and other current assets	4,380		2,098
Total current assets	367,375		434,982
Long-term investments	58,416		5,157
Operating lease right-of-use assets	26,944		27,003
Property and equipment, net	18,675		19,408
Restricted cash	524		524
Other assets	853		855
Total assets	$	472,787	$	487,929
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,956	$	2,104
Accrued expenses	7,175		8,298
Deferred revenue	263		133
Operating lease liabilities, current	2,188		1,842
Other current liabilities	172		207
Total current liabilities	11,754		12,584
Operating lease liabilities, net of current portion	27,684		28,032
Other noncurrent liabilities	360		320
Total liabilities	39,798		40,936
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized as of March 31, 2023 and December 31, 2022; zero shares issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Class A common stock, $0.00001 par value; 94,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 59,694,350 and 59,366,077 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	1		1
Class B common stock, $0.00001 par value; 6,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 4,044,969 and 4,044,969 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	676,536		667,739
Accumulated other comprehensive loss	(93)		(1,251)
Accumulated deficit	(243,455)		(219,496)
Total stockholders’ equity	432,989		446,993
Total liabilities and stockholders’ equity	$	472,787	$	487,929

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SEER, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended March 31,
	2023		2022
Revenue:

Product	$	2,343	$	2,149
Service	69		79
Related party	1,306		1,070
Grant and other	335		14
Total revenue	4,053		3,312
Cost of revenue:
Product	1,436		1,660
Service	7		14
Related party	478		394
Grant and other	64		—
Total cost of revenue	1,985		2,068
Gross profit	2,068		1,244
Operating expenses:
Research and development	14,474		10,732
Selling, general and administrative	15,039		14,298
Total operating expenses	29,513		25,030
Loss from operations	(27,445)		(23,786)
Other income (expense):
Interest income	3,717		144
Other expense	(231)		(4)
Total other income	3,486		140
Net loss	$	(23,959)	$	(23,646)
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities	1,158		(1,691)
Comprehensive loss	$	(22,801)	$	(25,337)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.38)	$	(0.38)
Weighted-average common shares outstanding, basic and diluted	63,543,094		62,003,504

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SEER, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)


	Class A and Class B Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance at December 31, 2022	63,411,046	$	1	$	667,739	$	(219,496)	$	(1,251)	$	446,993
Issuance of Class A common stock from exercise of options and release of restricted stock units	328,273	—		30		—		—		30
Vesting of early exercised stock options and restricted common stock	—	—		43		—		—		43
Stock-based compensation	—	—		8,724		—		—		8,724
Other comprehensive gain	—	—		—		—		1,158		1,158
Net loss	—	—		—		(23,959)		—		(23,959)
Balance at March 31, 2023	63,739,319	$	1	$	676,536	$	(243,455)	$	(93)	$	432,989

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SEER, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)


	Class A and Class B Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance at December 31, 2021	62,015,483	$	1	$	629,981	$	(126,530)	$	(536)	$	502,916
Issuance of Class A common stock from exercise of options and release of restricted stock units	283,251	—		773		—		—		773
Repurchase of Class A common stock	(5,841)	—		—		—		—		—
Vesting of early exercised stock options and restricted common stock	—	—		44		—		—		44
Stock-based compensation	—	—		8,062		—		—		8,062
Other comprehensive loss	—	—		—		—		(1,691)		(1,691)
Net loss	—	—		—		(23,646)		—		(23,646)
Balance at March 31, 2022	62,292,893	$	1	$	638,860	$	(150,176)	$	(2,227)	$	486,458

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SEER, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)



	Three Months Ended March 31,
	2023		2022

OPERATING ACTIVITIES
Net loss	$	(23,959)	$	(23,646)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	8,724		8,062
Depreciation and amortization	1,249		875
Loss on disposal of property and equipment	226		—
Net amortization of premium on available-for-sale securities	(2,378)		314
Provision for inventory excess and obsolescence	178		—
Non-cash operating lease expense	57		597
Changes in operating assets and liabilities:
Accounts receivable, net	(420)		(298)
Related party receivables	421		157
Other receivables	(166)		(174)
Prepaid expenses and other current assets	(2,282)		(2,850)
Inventory	(40)		300
Other assets	2		11
Accounts payable	(100)		(479)
Deferred revenue	130		18
Accrued expenses	(985)		(2,038)

Other current liabilities	(35)		—
Other noncurrent liabilities	47		—
Net cash used in operating activities	(19,331)		(19,151)
INVESTING ACTIVITIES
Purchases of property and equipment	(121)		(1,080)
Purchase of available-for-sale securities	(134,520)		—
Proceeds from sale of available-for-sale securities	2,990		—
Proceeds from maturities of available-for-sale securities	146,130		12,000
Net cash provided by investing activities	14,479		10,920
FINANCING ACTIVITIES
Repurchase of Class A common stock	—		(21)
Proceeds from exercise of Class A common stock options	30		773
Net cash provided by financing activities	30		752
Net decrease in cash, cash equivalents and restricted cash	(4,822)		(7,479)
Cash, cash equivalents and restricted cash, beginning of period	53,732		233,337
Cash, cash equivalents and restricted cash, end of period	$	48,910	$	225,858

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Property and equipment purchases included in accounts payable	$	6	$	204
Property and equipment purchases included in accrued expenses	$	198	$	183
Inventory transferred to property and equipment	$	771	$	635
Lease liability obtained in exchange for right-of-use assets	$	514	$	6,855

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1.ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Seer, Inc. (the Company) was incorporated in Delaware on March 16, 2017, and is headquartered in Redwood City, California, with wholly-owned subsidiaries in Massachusetts and the United Kingdom. The Company is a life sciences company focused on capturing deep molecular insights from the proteome to enable novel insights and breakthroughs in the understanding of biology and disease. Since inception, the Company has devoted substantially all of its resources to research and development activities, including with respect to the Proteograph Product Suite, building its commercial infrastructure including manufacturing, operations, sales and marketing and service and support functions, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, becoming a publicly-traded company, and providing general and administrative support for these activities.

The Company is subject to a number of risks, similar to other early-stage life science companies, including, but not limited to, development and commercialization of its products, market acceptance of its products, development by its competitors of new technological innovations, protection of its intellectual property, and raising additional capital.

Liquidity

As of March 31, 2023, the Company has incurred significant losses and has had negative cash flows from operations. As of March 31, 2023, the Company had cash and cash equivalents and short-term investments of $352.1 million and an accumulated deficit of $243.5 million. Management expects to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while the Company makes investments to support its anticipated growth. The Company believes that its cash and cash equivalents and investments as of March 31, 2023 provide sufficient capital resources to continue its operations for at least 12 months from the issuance date of the accompanying unaudited condensed consolidated financial statements.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company has issued shares of Class A common stock herein referred to as “Class A common stock” or “Class A” and Class B common stock herein referred to as “Class B common stock” or “Class B,” and collectively as “common stock.” The unaudited condensed consolidated financial statements include the accounts of Seer, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including, but not limited to, those related to the determination of stand-alone selling price for revenue recognition, the fair value of common stock, stock-based compensation, accrued research and development expenses, allowance for credit losses, inventory valuation, useful lives and valuation of property and equipment, income tax uncertainties, and tax valuation allowances.

Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and investments. The Company maintains bank deposits in federally insured

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

financial institutions, and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents and issuers of investments to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation (FDIC). On March 10, 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation and the FDIC was appointed as receiver. On March 27, 2023, First-Citizens Bank & Trust Company assumed all of SVB's deposits and loans. In light of the foregoing, the Company does not believe that it has exposure to loss as a result of SVB’s receivership. As of March 31, 2023, the Company held $0.8 million in SVB and has not experienced any losses on its deposits of cash, cash equivalents and investments.

For the three months ended March 31, 2023 and 2022, the Company recognized revenue from a related party that represented 32% of the Company’s total revenue.

For the three months ended March 31, 2023, 22% of the total revenue was generated outside of the United States, primarily from countries in Asia and Europe. For the three months ended March 31, 2022, 25% of the total revenue was generated outside of the United States, primarily from countries in Asia and Europe.

As of March 31, 2023 and December 31, 2022, there was one related party customer which represented 23% and 25%, respectively, of the total accounts receivable balance. As of December 31, 2022, there were two additional customers which represented 10% and 12% of the total accounts receivable balance.

Impact of the COVID-19 Pandemic

As a result of the COVID-19 pandemic (COVID-19), the Company’s operations experienced disruptions and restrictions on employees’ ability to work and on the hiring of additional personnel. The Company’s personnel has experienced delays in accessing customers in certain countries with strict COVID-19 policies to provide installation and training services. Continued disruptions from COVID-19 could harm the Company’s operations and the Company cannot anticipate all the ways in which it could be adversely impacted by health epidemics such as COVID-19. The Company continues to monitor and assess the effects of the COVID-19 pandemic on its business, financial condition, results of operations and cash flows.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of March 31, 2023 and December 31, 2022, all amounts recorded as cash and cash equivalents consist of cash and money market funds and are stated at fair value.

Restricted cash as of March 31, 2023 and December 31, 2022 represents cash held by a financial institution as security for a letter of credit issued to the lessor for one of the Company’s operating leases and is classified as noncurrent.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows (in thousands):


	March 31,		December 31,
	2023		2022

Cash and cash equivalents	$	48,386	$	53,208
Restricted cash	524		524
Total cash and cash equivalents and restricted cash	$	48,910	$	53,732

Accounts Receivable, Net

Accounts receivable consist of amounts due from customers for the sales of products and services, net of any allowance for credit losses. The Company’s expected loss allowance methodology for receivables is developed using its historical collection experience, current and future economic market conditions and a review of the current

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

aging status and financial condition of its customers. Balances are written off when they are ultimately determined to be uncollectible. There were $24,000 and $30,000 allowance for credit losses related to accounts receivable as of March 31, 2023 and December 31, 2022, respectively.

Revenue Recognition

The Company generates revenue from sales of products and services. The Company’s product, the Proteograph Product Suite, consists of an instrument with embedded software essential to the instrument's functionality, and consumables as well as platform evaluation agreements. The Company began recognizing revenue from shipments of its Proteograph Product Suite during the second quarter of 2021. The service revenue primarily consists of revenue received from the generation and analysis of proteomic data on behalf of the customer and revenue is recognized upon delivery of the reports.

The Company recognizes revenue when control of the products and services is transferred to its customers in an amount that reflects the consideration it expects to be entitled to receive from its customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is distinct within the context of the contract. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to direct the use and obtain substantially all the economic benefits from the good or service.

Revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities. Customers are invoiced generally upon shipment, or upon order for services, and payment is typically due within 30 or 60 days. Cash received from customers in advance of product shipment or providing services is recorded as a contract liability. The Company’s contracts with its customers generally do not include rights of return.

At times, the Company may enter into arrangements with payment terms which exceed one year from the transfer of control of the product or service. In such cases, the Company assesses whether the arrangement contains a significant financing component. If a significant financing component exists, the transaction price is adjusted for the financing portion of the arrangement, which is recorded as interest income over the payment term using the effective interest method. The Company does not assess whether a significant financing component exists when, at contract inception, the period between the transfer of control to a customer and final payment is one year or less.

The Company elected the practical expedient to account for shipping and handling activities that occur after the customer has obtained control as a fulfillment activity and not a separate performance obligation. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period is one year or less or the amount is immaterial. The Company excludes from the transaction price all taxes assessed by a governmental authority on revenue-producing transactions that are collected by the Company from a customer.

The Company regularly enters into contracts that include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations. The transaction price is allocated to each performance obligation in proportion to its standalone selling price. The Company determines the standalone selling price using average selling prices with consideration of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, the Company relies upon prices set by management, adjusted for applicable discounts.

Grant and Other Revenue

Grant revenue represents funding under cost reimbursement programs from federal foundation sources for qualified research and development activities performed by the Company and are not based on estimates that are subject to change. Grants received are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred. Such amounts are recorded as revenue as grant-

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

funded activities are performed up to the amount of expenses incurred. Any advance funding payments are recorded as deferred revenue until the activities are performed.

The Company recognizes revenue for research and development services contracts when control is transferred, which is upon completion of the services and when results of the services have been transferred to the customer. Upfront payments and fees received are recorded as deferred revenue until the Company performs its obligations under its arrangements. Amounts payable to the Company are recorded as other receivables when its right to consideration is unconditional.

A portion of the Company’s revenue relates to lease arrangements. Standalone lease arrangements are outside the scope of ASC 606 and are therefore accounted for in accordance with ASC 842. Each of these contracts is evaluated as a lease arrangement, either as an operating lease or a sales-type lease using the lease classification guidance.

The total consideration in a lease arrangement is allocated between lease and non-lease components on their relative stand-alone selling prices. The stand-alone selling price is based on the price the Company would sell that promised good or service separately to a customer. If a stand-alone price is not available for a component, it is estimated using the best information available.

Income Taxes

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures in the period incurred and requires amortization over five years or fifteen years pursuant to Internal Revenue Code Section 174. The Company has reflected this change in legislation in its annual tax provision included in the Annual Report on Form 10-K filed with the SEC on March 6, 2023 and it does not result in any material impact on its financial position, results of operations or cash flows.

3.FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables set forth the fair value of the Company’s financial assets that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands).


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	41,906	$	—	$	—	$	41,906
U.S. Treasury securities	—		6,480		—		6,480
Total cash equivalents	41,906		6,480		—		48,386
Investments:
U.S. Treasury securities	—		223,594		—		223,594
U.S. Non-Treasury securities	—		16,841		—		16,841
Commercial paper	—		58,300		—		58,300
Corporate debt securities	—		63,389		—		63,389
Total investments	—		362,124		—		362,124
Total assets measured at fair value	$	41,906	$	368,604	$	—	$	410,510

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	53,208	$	—	$	—	$	53,208
Total cash equivalents	53,208		—		—		53,208
Investments:
U.S. Treasury securities	—		227,692		—		227,692
U.S. Non-Treasury securities	—		10,702		—		10,702
Commercial paper	—		55,433		—		55,433
Corporate debt securities	—		79,361		—		79,361
Total investments	—		373,188		—		373,188
Total assets measured at fair value	$	53,208	$	373,188	$	—	$	426,396

There were no financial liabilities measured at fair value. The Company classifies money market funds within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Company classifies its investments in U.S. Treasury securities (Treasury bills, Treasury notes, and Treasury bonds) as Level 2 instruments and obtains fair value from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model-driven valuations using observable market data or inputs corroborated by observable market data.

The carrying amount of the Company’s accounts receivable, other receivables, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate fair value due to their short maturities.

The following is a summary of the Company’s cash equivalents and investments and the gross unrealized holding gains and losses (in thousands):

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements


	March 31, 2023
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Assets:
Cash equivalents:
Money market funds	$	41,906	$	—	$	—	$	41,906
U.S. Treasury securities	6,479		1		—		6,480
Total cash equivalents	48,385		1		—		48,386
Investments:
U.S. Treasury securities	223,488		258		(152)		223,594
U.S. Non-Treasury securities	16,818		24		(1)		16,841
Commercial paper	58,372		2		(74)		58,300
Corporate debt securities	63,542		7		(160)		63,389
Total investments	362,220		291		(387)		362,124
Total assets measured at fair value	$	410,605	$	292	$	(387)	$	410,510


	December 31, 2022
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Assets:
Cash equivalents:
Money market funds	$	53,208	$	—	$	—	$	53,208
Total cash equivalents	53,208		—		—		53,208
Investments:
U.S. Treasury securities	228,563		25		(896)		227,692
U.S. Non-Treasury securities	10,699		6		(3)		10,702
Commercial paper	55,561		3		(131)		55,433
Corporate debt securities	79,616		6		(261)		79,361
Total investments	374,439		40		(1,291)		373,188
Total assets measured at fair value	$	427,647	$	40	$	(1,291)	$	426,396

As of March 31, 2023 and December 31, 2022, unrealized losses on available-for-sale investments are not attributable to credit risk and are considered to be temporary. Approximately $0.1 million of the Company’s investments have been in a continuous unrealized loss position for 12 months or longer. The Company believes it is more likely than not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value. As of March 31, 2023, $58.4 million of available-for-sale investments had remaining maturities between one and two years. The remainder of the available-for-sale investments have a remaining maturity of one year or less. As of March 31, 2023 and December 31, 2022, the Company recorded $0.7 million and $0.6 million of accrued interest, respectively, related to its available-for-sale investments as a component of other receivables on the condensed consolidated balance sheets.

4.OTHER FINANCIAL STATEMENT INFORMATION

Inventory

Inventory consists of the following (in thousands):

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements


	March 31,		December 31,
	2023		2022
Raw materials	$	1,592	$	2,129
Work-in-progress	205		271
Finished goods	1,921		2,227
Total inventory	$	3,718	$	4,627

Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):


	March 31,		December 31,
	2023		2022
Laboratory equipment	$	22,092	$	21,122
Computer equipment and software	909		876
Furniture and fixtures	575		575
Leasehold improvements	3,375		3,375
Construction-in-progress	106		1,281
Property and equipment	27,057		27,229
Less: accumulated depreciation and amortization	(8,382)		(7,821)
Total property and equipment, net	$	18,675	$	19,408

Depreciation and amortization expense related to property and equipment was $1.2 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):


	March 31,		December 31,
	2023		2022
Accrued compensation	$	3,806	$	6,139
Accrued professional services	458		322
Accrued property and equipment	198		300
Accrued research and development	259		235
Accrued taxes	790		335
Other	1,664		967
Total accrued expenses	$	7,175	$	8,298

5.REVENUE AND DEFERRED REVENUE

Product revenue consists of an instrument with embedded software essential to the instrument’s functionality, consumables and platform evaluation agreements. Service revenue primarily consists of revenue received from the generation and analysis of proteomic data on behalf of the customer. Related party revenue is comprised of both the sale of products and services performed for related parties, as further discussed in Note 10. Grant revenues consist of services performed specifically for the reimbursement of research-related expenses.

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Product Revenue

For the three months ended March 31, 2023 and 2022, the Company recognized $2.3 million and $2.1 million of product revenue to non-related customers, respectively. As of March 31, 2023 and December 31, 2022, the Company recorded $0.1 million and $34,000 of deferred revenue related to product sales, respectively.

Service Revenue

For the three months ended March 31, 2023 and 2022, the Company recognized $69,000 and $79,000 of service revenue to non-related customers, respectively. As of March 31, 2023 and December 31, 2022, the Company recorded $0.2 million and $0.1 million of deferred service revenue, respectively.

Deferred revenue activity for the period ended March 31, 2023 and December 31, 2022 are as follows (in thousands):


	March 31,		December 31,
	2023		2022
Balance, beginning of period	$	133	$	376
Additions	614		233
Revenue recognized	(441)		(476)
Balance, end of period	$	306	$	133

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods. As of March 31, 2023, $3.1 million of revenue is expected to be recognized from the remaining performance obligations, of which 77% is expected to be recognized within 12 months and the remainder thereafter.

Grant and Other Revenue

In August 2019, the Company received a notice of a Small Business Innovation Research (SBIR) grant award from the National Institutes of Health, which will provide funding of approximately $1.1 million to the Company for its development of research applications. For the three months ended March 31, 2023 and 2022, the Company recognized $0.3 million and approximately $14,000 of grant revenue, respectively, with respect to the award.

6.CAPITAL STOCK AND STOCKHOLDERS’ EQUITY

As of March 31, 2023, the Company is authorized to issue 105,000,000 shares of capital stock consisting of 94,000,000 shares of Class A common stock, 6,000,000 shares of Class B common stock, and 5,000,000 shares of preferred stock.

Common Stock

Common stock issued and outstanding is as follows:


	March 31,	December 31,
	2023	2022

Class A common stock	59,694,350	59,366,077
Class B common stock	4,044,969	4,044,969
Total common stock issued and outstanding	63,739,319	63,411,046

Class A and Class B common stock have a par value of $0.00001 per share. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to 10 votes per share. Class B common shares are convertible to Class A common shares at any time at the option of the holder on a one-for-one

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

basis. Holders of common stock are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date.

Common stock issued and outstanding on the condensed consolidated balance sheets and condensed consolidated statements of changes in stockholders' equity includes shares related to early exercised options and restricted stock that are subject to repurchase.

7.EQUITY INCENTIVE PLANS

As of March 31, 2023, there are 14,570,948 shares of Class A common stock reserved for issuance under the 2020 Equity Incentive Plan, 4,581,459 of which shares are available for issuance in connection with grants of future awards.

Stock Options

Stock option activity for the three months ended March 31, 2023 is as follows:


	Options Outstanding	Weighted Average Exercise Price
Balance at December 31, 2022	10,214,430	$	13.90
Options granted	2,247,900	4.60
Options exercised	(13,595)	2.20
Options forfeited	(101,825)	12.77
Balance at March 31, 2023	12,346,910	$	12.23
Vested and exercisable, March 31, 2023	5,241,662	$	8.76

Market Condition Options

During the three months ended March 31, 2023, the Company granted options to purchase an aggregate of 1,794,000 shares of the Company’s Class A common stock to certain Company executives, with vesting subject to market conditions (Market Condition Options). The Market Condition Options become eligible to vest if the average of the closing sales prices of a share of Class A common stock over a trailing twenty trading day period within seven years from the date of grant reaches a stock price of $6.885 per share (the Market Price Milestone). If the Market Price Milestone is achieved, 25% of each Market Condition Option will vest upon certification of such achievement, subject to the recipient’s continued service through the Market Price Milestone achievement date, and an additional 25% of each Market Condition Option will then vest on each of the one-, two- or three-year anniversaries of the Market Price Milestone achievement date, respectively, subject to the recipient’s continued service through the applicable anniversary date. In the event of the Company’s change in control during the seven-year performance period, the performance period will be shortened, achievement of the Market Price Milestone will be assessed based on the per share value of consideration that stockholders receive in the transaction (the CIC Price), and if the Market Price Milestone is achieved on that basis, each Market Condition Option will vest in full as of immediately prior to the change in control, subject to the recipient’s continued service as of immediately prior to the change in control.

The Market Condition Option has a grant date fair value of approximately $5.2 million determined using a lattice-binomial option-pricing model based on a Monte Carlo simulation. The following assumptions were used to determine the grant date fair value of $2.80 - $3.02: (i) risk-free interest rate: 3.94%; (ii) expected volatility: 83.1%; and (iii) expected dividend yield: 0.0%. Compensation expense is recognized using an accelerated attribution method based on the derived service periods for each of the tranches. Failure to meet the market condition for an award does not result in reversal of previously recognized expense, so long as the service is provided for the duration of the respective derived service period.

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company recognized compensation expense of $0.5 million related to the Market Condition Options for the three months ended March 31, 2023. As of March 31, 2023, there was $4.8 million in unrecognized compensation related to unvested Market Condition Options, which the Company expects to recognize over a remaining weighted-average period of 2.08 years.

Restricted Stock Awards

Certain stock options granted provide stock option holders the right to exercise unvested stock options in exchange for restricted shares of Class A common stock. The Company has also issued restricted shares of Class A common stock to employees and directors. There were 65,251 shares and 60,787 shares of restricted stock that were unvested and subject to repurchase as of March 31, 2023 and December 31, 2022, respectively.

Restricted Stock Units

RSU activity for the three months ended March 31, 2023 is as follows:


	Restricted Stock Units	Weighted-Average Grant Date Fair Value
Balance at December 31, 2022	1,650,976	$	18.23
Granted	2,110,570	4.59
Vested	(314,678)	22.08
Forfeited	(17,718)	10.97
Balance at March 31, 2023	3,429,150	$	9.52

Employee Stock Purchase Plan

A total of 1,829,437 shares of Class A common stock are reserved for issuance under the 2020 Employee Stock Purchase Plan (ESPP) as of March 31, 2023. During the three months ended March 31, 2023 and 2022, no shares of Class A common stock were issued under the ESPP.

Stock-Based Compensation

The following table summarizes the components of stock-based compensation recognized in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):


	Three Months Ended March 31,
	2023		2022
Cost of revenue	$	328	$	208
Research and development	2,549		2,001
Selling, general and administrative	5,847		5,853
Total stock-based compensation	$	8,724	$	8,062

In February 2022, in connection with a leave of absence taken by one of our executives, a total of 1,330,892 share-based awards were modified to extend the overall term and change the timing of the vesting of the awards. The total incremental stock-based compensation associated with the modification is $0.9 million, which will be recognized over the next eight years. Effective on September 30, 2022, the executive resigned from his position as President of the Company and the Company’s Board of Directors.

On June 21, 2022, the Board of Directors approved an option repricing to reduce the exercise price of certain vested, outstanding, and unexercised stock options with an exercise price greater than $19.00 per share that were held by employees who were not members of the Board or Director or officers for purposes of Section 16 of the Securities

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Exchange Act of 1934, as amended (“Non-Section 16 employees”) to $19.00 per share, which was the Company’s initial public offering price. The Board of Directors also approved the repricing of certain unvested, outstanding, and unexercised stock options with an exercise price greater than $19.00 per share that were held by Non-Section 16 employees to $7.40 per share, which was the closing price of the Company’s Class A common stock on the Nasdaq Global Select Market on the date of the approval of the repricing. Except for the exercise price, the amended stock options have the same terms and conditions (including vesting schedule, number of shares, and expiration date) and will continue to be governed by the terms of the 2020 Equity Incentive Plan.

As a result of the option repricing, the Company recorded $2.0 million of stock-based compensation expense for the three months ended March 31, 2023. The total unrecognized stock-based compensation associated with the option repricing is $1.6 million, which will be recognized over the next three years.

8. LEASES

As a lessee, the Company leases approximately 51,000 square feet of office and laboratory space in Redwood City, California with a lease term that is set to end on September 30, 2032. The Company has an option to renew all leased space for an additional five-year term at then-current market rates. In connection with the lease, the Company maintains a letter of credit issued to the lessor in the amount of $0.5 million as of March 31, 2023 and December 31, 2022, which is secured by restricted cash and is presented as noncurrent at each date based on the term of the underlying lease. In addition, the Company leases approximately 6,000 square feet of office space in San Diego, California pursuant to a lease that runs through September 2024.

As of March 31, 2023, the remaining weighted-average lease term was 9.4 years and the weighted-average incremental borrowing rate used to determine the operating lease liabilities was 6.2%.

The components of lease costs related to the Company’s operating leases were as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
Operating lease costs	$	1,038	$	813
Variable lease costs	161		194
Short-term lease costs	10		69
Total lease costs	$	1,209	$	1,076

Variable lease costs are primarily comprised of common area maintenance.

As of March 31, 2023, future minimum commitments under the Company’s non-cancelable facility operating lease are as follows:


Years ending December 31,	(in thousands)
2023 (remaining nine months)	$	2,961
2024	3,969
2025	3,846
2026	3,957
2027	4,072
Thereafter	21,065
Total undiscounted future minimum lease payments	39,870
Present value adjustment for minimum lease commitments	(9,998)

Total operating lease liabilities	$	29,872

As a lessor, the Company has contracts for equipment leased to customers. The Company accounts for the non-lease component under the revenue recognition ASC 606 guidance and the lease component under ASC 842 guidance. For

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

an arrangement that has been classified as a sales-type lease, revenue is recognized when the transfer of control of the underlying leased asset has occurred and the net investment lease recorded, which is calculated at the present value of the remaining lease payments due from the lessee.

Revenue related to lease components from operating leases is presented as grant and other revenue and was $40,000 and nil for the three months ended March 31, 2023 and 2022, respectively.

9. COMMITMENTS AND CONTINGENCIES

Purchase Commitments and Obligations

The Company has certain purchase commitments related to its inventory management with certain manufacturing suppliers wherein the Company is required to purchase the amounts forecasted in a blanket purchase order within a certain time period. The contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not enforceable or subject to change. These outstanding commitments amounted to $4.3 million and $5.7 million as of March 31, 2023 and December 31, 2022, respectively.

Guarantees and Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. The Company has entered into indemnification agreements with certain directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of the status or service as directors or officers. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of March 31, 2023 and December 31, 2022, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

Contingencies

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not currently a party to any material legal proceedings.

10. RELATED PARTY TRANSACTIONS

In August 2020, the Company formed a new entity, PrognomiQ, Inc. (PrognomiQ), and entered into a stock purchase agreement with PrognomiQ, pursuant to which the Company transferred to PrognomiQ certain assets that comprise the Company’s human diagnostics activities in exchange for all the outstanding equity interests of PrognomiQ. The Company subsequently completed a pro-rata distribution to its stockholders of most of the shares of capital stock of PrognomiQ.

The Company has concluded that PrognomiQ is a VIE due to its reliance on future financing and insufficient equity investment at risk. However, the Company is not the primary beneficiary of the VIE as it does not have the power to direct the activities that most significantly impact the economic performance of PrognomiQ and does not have control over the PrognomiQ board of directors. The Company has determined that it has the ability to exercise significant influence over PrognomiQ and therefore has accounted for its investment in PrognomiQ using the equity method. During the year ended December 31, 2022, the carrying value of the Company’s investment in PrognomiQ was reduced to nil after recognizing net losses based on its percentage of ownership in PrognomiQ.

PrognomiQ constitutes a related party and, as of March 31, 2023 and December 31, 2022, the Company held $1.4 million and $1.5 million in related party receivables, respectively, on the condensed consolidated balance sheets representing amounts due from product sales and services and for general transition services and support provided. For the three months ended March 31, 2023 and 2022, the Company recognized revenue of $1.3 million and $1.1 million, respectively, from PrognomiQ, which is presented as related party revenue on the condensed consolidated statements of operations and comprehensive loss and is comprised of the sale of instruments and consumables, and services performed.

SEER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

During 2022, a member of the Company’s Board of Directors served as a board member and an executive officer at a company that is a customer of the Company. As of March 31, 2023 and December 31, 2022, the Company recorded nil and $0.3 million in related party receivables, respectively, on the condensed consolidated balance sheets, representing revenue from products sales. There was no revenue recognized for the three months ended March 31, 2023 and 2022. The Company has a contract for equipment leased to this customer that has been classified as a sales-type lease. As of March 31, 2023 and December 31, 2022, the lease receivables related to the sales-type lease is $0.2 million. The lease receivables are presented as prepaid expenses and other current assets on the condensed consolidated balance sheets.

11. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

The following table shows the computation of basic and diluted net loss per share (in thousands, except share and per share data):


	Three Months Ended March 31,
	2023		2022
Numerator:
Net loss attributable to common stockholders	$	(23,959)	$	(23,646)
Denominator:
Weighted-average common shares used in computing net loss per share attributable to common stockholders, basic and diluted	63,543,094		62,003,504
Net loss per share attributable to common stockholders, basic and diluted	$	(0.38)	$	(0.38)

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis):


	March 31,
	2023	2022
Class A common stock options issued and outstanding	12,346,910	11,560,004
Restricted common stock subject to future vesting	65,251	125,231
Restricted stock units	3,429,150	1,959,042
Total	15,841,311	13,644,277

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled “Special Note Regarding Forward Looking Statements.” Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled “Risk Factors.”

Overview

Our mission is to imagine and pioneer new ways to decode the secrets of the proteome to improve human health. Our first product, the ProteographTM Product Suite (Proteograph), leverages our proprietary engineered nanoparticle (NP) technology to provide unbiased, deep, rapid and large-scale access to the proteome. The Proteograph Product Suite is an integrated solution that includes consumables, an automation instrument and software.

We believe that broader access to the proteome is essential, not only to understanding its complexity and accelerating biological insights, but also to expanding end-markets. These markets may include basic research and discovery, translational research, diagnostics and applied applications. To comprehend the complexity and dynamic nature of the proteome, researchers must perform population-scale, deep, unbiased interrogation of biological samples over time. We believe that this level of interrogation was not previously feasible and that the Proteograph can enable researchers to perform these types of proteomics studies.

Since we were incorporated in 2017, we have devoted substantially all of our resources to research and development activities, including with respect to the Proteograph Product Suite, building our commercial infrastructure including manufacturing, operations, sales and marketing and service and support functions, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, becoming a publicly-traded company, and providing general and administrative support for these activities.

Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful commercialization of the Proteograph Product Suite. We are commercializing the Proteograph Product Suite as an integrated solution comprised of consumables, our SP100 automation instrument and software. Our commercial strategy is focused on growing adoption by the research community of the Proteograph, expanding the installed base and increasing utilization to generate revenue from the purchase of Proteograph consumables. We expect a highly efficient sales model because our workflow integrates with most existing proteomics laboratories’ workflows and also complements large-scale genomics research.

We are broadly commercializing the Proteograph Product Suite through a direct sales channel in the United States, and through both direct and distributor sales channels in regions outside the United States. Since we are in the early stages of commercialization, we have built, and will continue to build, our sales, marketing, support and product distribution capabilities. In addition, we will continue to build the necessary infrastructure for these activities in the United States, European Union, the United Kingdom, and other countries and regions, including Asia-Pacific, as we execute on our commercialization strategy for the Proteograph.

We leverage well-established unit operations to formulate and manufacture our NPs at our facilities in Redwood City, California. We procure certain components of our consumables from third-party manufacturers, which includes the commonly-available raw materials needed for manufacturing our proprietary engineered NPs. We are currently manufacturing using our production-scale and pilot lines and continue to build out our manufacturing capabilities to support broad commercial availability of our products. We obtain some of the reagents and components used in the Proteograph workflow from third-party suppliers. While some of these reagents and components are currently sourced from a single supplier, these products are readily available from numerous suppliers. While we currently perform some filling and packaging of the Proteograph assay and the related consumables, we may eventually have

our filling and packaging outsourced to a third party. We conduct vendor and component qualification for components provided by third-party suppliers and quality control tests on our NPs.

We designed the SP100 automation instrument and have outsourced its manufacturing to Hamilton Company, a leading manufacturer of automated liquid handling workstations. We have entered into a non-exclusive agreement with Hamilton that covers the manufacturing of the SP100 automation instrument and its continued supply on a purchase order basis. The agreement has an initial term that runs three years following our commercial launch. We have the option to extend the term of the agreement with Hamilton upon written notice at the end of the initial term; provided that prices are only fixed during the initial term of the agreement. Hamilton has represented to us that it maintains ISO 9001 and ISO 13485 certification.

During the three months ended March 31, 2023 and 2022, we incurred a net loss of $24.0 million and $23.6 million, respectively, and used $19.3 million and $19.2 million of cash in operations, respectively. As of March 31, 2023, we had an accumulated deficit of $243.5 million and cash and cash equivalents and investments of $410.5 million. We expect to continue to incur significant and increasing losses and do not expect positive cash flows from operations for the foreseeable future.

We expect our expenses to increase significantly in connection with our ongoing activities, as we:

•broadly commercialize the Proteograph Product Suite;

•attract, hire and retain qualified personnel;

•continue to build our sales, marketing, service, support and distribution infrastructure as part of our commercialization efforts;

•build-out and expand our in-house NP manufacturing capabilities;

•continue to engage in research and development of other products and enhancements to the Proteograph Product Suite;

•implement operational, financial and management information systems;

•obtain, maintain, expand, and protect our intellectual property portfolio; and

•build the infrastructure to operate and scale as a public company.

COVID-19 Pandemic

As a result of the COVID-19 pandemic, we could experience disruptions that could severely impact our business. Pandemic precautions and preventative measures may also impact our commercialization plans due to restrictions on our customers’ ability to access laboratories, causing delays in the delivery and installation of the Proteograph products, training such customers on our products, and their ability to conduct research. We have experienced delays in our ability to access customers in certain countries with strict COVID-19 policies to provide installation and training services. Furthermore, COVID-19 has adversely affected the broader economy and financial markets, resulting in an economic downturn that could curtail the research and development budgets of our customers, our ability to hire additional personnel and our financing prospects. Any of the foregoing could harm our operations and we cannot anticipate all the ways in which it could be adversely impacted by health epidemics such as COVID-19.

For additional details, see the section titled “Risk Factors.”

Components of Results of Operations

Revenue

We generate revenue from product sales, including sales of the Proteograph Product Suite, which consists of an instrument with embedded software essential to the instrument’s functionality and associated consumables as well as our platform evaluation agreements. In addition, we may at times generate revenue from performing services, the

receipt of grant revenue for the reimbursement of research-related expenses, and lease arrangements. Our revenue is primarily generated domestically. We intend to focus our commercial efforts in the United States and expect to grow our international presence. A portion of our revenue is generated by sales to related parties and we anticipate a portion of our revenue to continue to be generated by sales to such related parties. Our grant-funded activities are expected to decrease as a percentage of total revenue as we decrease grant-funded activities and continue to ramp up commercialization of the Proteograph Product Suite.

Cost of Revenue

We utilize third-party manufacturers for production of our SP100 instrument and we manufacture our NPs and assemble our assay kits internally. Cost of revenue consists primarily of costs of the components of the Proteograph Product Suite, including the SP100 instrument with embedded software essential to the instrument’s functionality, and consumables, and distribution-related expenses such as logistics and shipping costs. In addition, cost of revenue includes stock-based compensation and related employee benefits, allocated overhead and write-downs or impairments of obsolete inventory.

Research and Development Expenses

Research and development, or R&D, expenses include costs associated with performing services under research and development service contracts and research and development of our technology and product candidates. R&D expenses consist primarily of employee compensation, including stock-based compensation and employee benefits, laboratory supplies used for in-house research, consulting costs, costs related to clinical studies for the collection of biological samples for research use, and allocated costs, including rent, depreciation, information technology and utilities.

We plan to increase our investment in our R&D efforts related to the Proteograph Product Suite, our product development pipeline and our proprietary engineered NP and other technologies. Therefore, we expect R&D expenses will increase in absolute dollars in future periods as we incur expenses associated with hiring additional personnel, purchasing supplies and materials, and the allocation of facility expense associated with the build-out of our expansion facilities to support our R&D efforts.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of employee compensation, including stock-based compensation, and related benefits for executive management, sales and marketing, service and support, finance, administration and human resources, legal, allocated overhead, professional service fees and other general overhead costs to support our operations.

We expect to incur additional selling, general and administrative expenses as we continue to invest in our personnel as we grow our commercial operations and with the additional costs incurred as a result of operating as a public company, including accounting, human resources, legal, insurance and investor relations costs. As a result, we expect selling, general and administrative expenses to increase in absolute dollars in future periods.

Interest Income

Interest income consists of interest earned on cash and cash equivalents and investments.

Results of Operations

Comparisons of the Three Months Ended March 31, 2023 and 2022

The following table summarizes our results of operations for the periods presented:


	Three Months Ended March 31,				Change
	2023		2022		Amount		%
	(dollars in thousands)
Revenue:
Product	$	2,343	$	2,149	$	194	9	%
Service	69		79		(10)		(13)	%
Related party	1,306		1,070		236		22	%
Grant and other	335		14		321		2293	%
Total revenue	4,053		3,312		741		22	%
Cost of revenue:
Product	1,436